For many homeowners and first-time homebuyers, the loan process is stressful and confusing. It is necessary for most to achieve homeownership. However, the plethora of fees can create stress and catch borrowers off guard. Understanding the various mortgage loan fees can help avoid unnecessary strain and using a trusted loan advisor can help ensure a smooth home loan process.
It is essential for borrowers to carefully review the Loan Estimate and Closing Disclosure provided by the lender. These documents outline all the costs and fees associated with the mortgage, with intention of giving a clear picture of the fees that are charged for a home loan.
There are no “hidden fees” in today’s regulations on lenders. All fees are invoiced or set as an amount that relates to a program. As lenders we often refer to the 2008-2010 era of home loans. In this time there were “junk fees” or hidden fees that were charged to a buyer. These often-included application fees up front that were nonrefundable. Others included: rate lock fees (for non-extended locks); processing fees, administrative fees; document preparations fees, settlement fees, express mail fees, courier fee; email or fax fee; affiliate consulting fees, bank inspections fees, notary fees, amortization fees, document review fees and lender inspection fees. However, some fees are necessary for a lender to perform a loan process and processing fees, underwriting fees and sometimes express mail fees are costs figured into the cost of processing a loan. These fees should be reasonable to the service provided. Review your loan estimate and ask for explanation. Your lender should be transparent and straightforward when it comes to reasonable fees.
These are typically standard fees such as: Appraisal fees; credit report fees; title search fees; recording fees; and inspection fees. These fees are not arbitrary but can vary per region and specific loan product. The Consumer Financial Protection Bureau (CFPB) has implemented regulations to prevent lenders from charging excessive or undisclosed fees. You may receive several Loan Estimates during the loan process. When a fee is increased or added the CFPB requires lenders to disclose this by issuing a new Loan Estimate. These regulations have reduced and almost eliminated negotiable fees and transparent lenders have little room for waiving fees.
APR, this acronym is disclosed on all loans, but eludes most on what it really means. Annual Percentage Rate, APR, includes both the mortgage rate plus all those other extra loan fees the lender is charging you. The mortgage rate is the amount of actual interest you are paying. APR is an expression of fees in a percentage to help evaluate the cost of a loan. The cost of a mortgage includes more than just the rate. There are origination fees, loan discount points, private mortgage insurance. The APR includes both the mortgage rate plus the other extra loan fees being charged. Some say a rule of thumb is if the APR is 0.75% to 1% higher than the interest rate you were quoted, the loan has a high fee structure. Is this always a bad thing, no. Some High-Cost mortgages meet the financial needs of a borrower. While most fees have legitimate purpose and are based on actual services provided during the loan process, borrowers should still review all fees and compare the APR listed on the Loan Estimate.
In addition to mortgage loan costs there are Real Estate closing costs. Real Estate closing costs refer to various fees and expenses related the to the transfer of ownership, including Title insurance fees, escrow/closing fees, attorney fees; transfer taxes; recording fees; HOA if applicable; prorated property taxes and utility bills; home inspection fees; and real estate commissions. Obtaining a mortgage loan may seem daunting, but understanding fees involved is key to empowering borrowers in making
informed decisions. By being proactive and informed, you will be equipped to navigate the world of mortgage loan fees.